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A slump in oil demand caused by the outbreak of the coronavirus in China could pressure oil prices by $2 per barrel Barclays analysts said, revising its full-year Brent crude forecast to $62 a barrel and its West Texas Intermediate forecast to $57 a barrel.
“If air passenger traffic in China declined by half in first quarter of 2020, it would likely lead to a 300,000 barrels per day year on year decline in jet-kerosene demand from China,” the analysts said, as quoted by Reuters. They added that they expected OPEC to step in and cut production deeper to ensure the balance of the oil market.
The downward revision from Barclays comes just a week after the bank said that it expects global crude demand growth to pick up in 2020 thanks to an improving global economic outlook.
Meanwhile, however, one OPEC member is involuntarily cutting production. Libya’s National Oil Corporation said earlier this week production had slumped by more than two-thirds over the last week, from over 1.2 million bpd to about 300,000 bpd. The drop followed the blockade of oil export terminals and the consequent shutdown of several oil fields.
The situation could deteriorate further, NOC’s chairman Mustafa Sanalla said, with production falling to as little as 72,000 bpd.
It seems, however, that traders have yet to read the news from Libya: at the time of writing Brent crude and WTI were both trading lower than yesterday, with Brent at $58.48 a barrel and WTI at $53.17 a barrel, extending a six-day losing streak.
In case the market already knows the news from Libya, then the excess supply situation could be worse than some may have believed or the coronavirus developments are outweighing any concern about tightening supply because of Libya.
In fact, according to Barclays, the coronavirus outbreak is likely to cause less economic problems than the SARS outbreak in 2003 because of its lower lethality and because of the Chinese authorities’ measures to contain the spread of the disease.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.